Analysts recommended slowing investment in Chinese stocks after China Evergrande Group, China's second-largest real estate developer, declared in a statement on Sept 20 that a default is likely, sending stock markets reeling across the globe.
The imminent default sparked fears among investors that it may aggravate the global economic downturn, according to UOB Asset Management (UOBAM).
US Treasury yields fell on Sept 20 as investors sold risky assets such as stocks and sought refuge in safe havens such as bonds amid concerns about the default of the debt-ridden China Evergrande Group.
After the massive selloffs, the Dow Jones Index fell more than 700 points, down over 2%, to 34,000 on Sept 20 while the MSCI All Country World Index dipped 0.6% near a one-month low.
Analysts at TS Lombard said Evergrande's debt default would escalate the financial crisis, jeopardising the global economic recovery.
On Sept 20, Evergrande released a formal statement admitting that the company is facing liquidity problems and may not be able to pay the debt as scheduled, while the company is slated to pay interest on the debentures in 2 installments this month.
The company is slated to pay interest of US$83.5 million or approximately 2.78 billion baht on Sept 23 on its debentures with maturity in March 2022. It is also due to pay interest worth $47.5 million or approximately 1.58 billion baht on Sept 29 on the debentures that mature in March 2024.
Investors will also keep an eye on the Federal Reserve's (Fed) monetary policy meeting on Sept 21-22 amid concerns the Fed may signal a cut in its bond-buying programme in this meeting.
According to data filed with the Shanghai Stock Exchange, global analysts stated that Evergrande had commercial debt totalling 2.057 billion yuan or $32 billion at the end of 2020.
It is estimated that Evergrande now has more than $300 billion, or about 10 trillion baht, in debt, equivalent to 2% of China's GDP, after it borrowed money for years to support its expansion of China's real estate business.
Thai Bond Market Association (TBMA) senior vice-president Sirinart Amornthum said there was no irregular movement in bond trading in the Thai bond market as investors are concerned about the default's impact on Evergrande's financial institutional creditors that may lose capital liquidity after the incident.
Regulators and participants have to monitor how the Chinese government will support its financial system.
According to local securities analysts, there are currently 5-6 Thai funds with investments in Evergrande bonds but they make up a small portion of the funds and do not affect the funds' returns. Investment in Chinese stocks in this period has also been delayed.
Analysts said the Fed's tapering of quantitative easing is another factor that investors need to closely monitor further as it will decrease liquidity in the global stock markets.
Foreign investors begun selling Thai stocks and bonds last week due to the increase of the Thai public debt ceiling from 60% to 70% as the market expected that it will increase supply in the bond market and cause lower returns.
UOBAM said the company has no exposure to Evergrande equities or bonds.
"Our exposure to fixed income issued by Chinese corporates, and the Chinese property sector in particular, has declined accordingly. We will continue to seek sound investment opportunities in China when value emerges," the company stated.